by Jeremy Buskirk, Senior Manager, and Marvin Founds, Managing Director, Baker Tilly Municipal Advisors, LLC
Ohio school districts continue to manage increasing costs related to instruction, staffing, facilities, and services while revenue sources may not grow at the same rate. The School District Income Tax (SDIT) has been a viable revenue option for many years. Currently, approximately one-third of Ohio school districts have an SDIT in place to support local funding needs. For many districts, the SDIT is worth a fresh look because it can diversify local funding and align a portion of revenue with resident income growth. It is not a universal solution, but it can be an effective complement to property tax levies when the district understands its tax base, voter expectations, and long-term financial forecast. This tax source also comes with flexibility in the approval process to be used for operating expenses, ongoing permanent improvements, and for large facilities projects.
What is the School District Income Tax?
The SDIT is a voter-approved income tax dedicated to school district purposes. It is separate from federal, state, municipal income, and property taxes, and the Ohio Department of Taxation (ODT) administers collections on behalf of school districts. The tax applies to Ohio residents who live in and maintain a permanent home in a school district that levies the tax; nonresidents are not subject to the tax merely because they work inside the district. Corporations also do not pay SDIT.
Collection generally mirrors the state income tax process through employer withholding, quarterly estimated payments, and annual SD 100 returns. Revenue is distributed to districts quarterly, one each in January, April, July, and October. Each payment will be for the amount collected during the prior quarter. The first-year revenue stream takes time to mature because annual returns are filed after the tax year closes and not all employers have withheld the tax. ODT notes that it can take approximately six quarters for a district to receive the full first-year liability.
Options when considering SDIT
A school district’s first policy choice is the tax base. Ohio permits two bases: traditional and earned income.
The traditional base starts with Ohio adjusted gross income, adds back certain deductions, and then subtracts personal exemptions. As a practical matter, it includes wages and many nonwage income sources such as interest, dividends, unemployment compensation, pensions, annuities, taxable IRA distributions, and capital gains, while excluding items such as Social Security benefits, workers’ compensation, child support, and certain disability or survivor benefits.
The earned income base is narrower. It includes wages, salaries, tips, other compensation, and net self-employment earnings to the extent included in modified adjusted gross income, but excludes interest, dividends, capital gains, pensions, and other non-earned income. This provides protection for retirees and fixed-income residents but typically generates lower revenue at the same rate as the traditional base.
A district may also choose duration and structure. An SDIT can be continuing or for a fixed number of years, and rates must be rounded to one-quarter percent increments. Districts may ask voters to enact an income tax and reduce certain continuing current-expense property tax levies in the same ballot issue, subject to statutory requirements and the 20-mill floor.
How many Ohio districts use SDIT?
The latest ODT list shows 214 school districts with an income tax as of January 2026. Of those, 68 districts use the earned income-only base and 146 use the traditional base. The same list shows six new districts effective for tax year 2026 and tax rates commonly ranging from 0.25% to 2.00%, but there is no rate limitation.
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SDIT Base
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Districts as of Jan. 2026
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Share of SDIT districts
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Traditional base
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146
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68.2%
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Earned income base
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68
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31.8%
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Total
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214
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100.0%
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SDIT levies compared with property tax levies
Property taxes remain a familiar and generally stable local school funding, but Ohio’s recent and prior property tax reform bills limit how much voted operating levies grow when existing property values increase. The Legislative Service Commission’s overview of voted levies distinguishes which levies are subject to H.B. 920 reduction factors and which levies are included in the school district 20-mill floor calculation. ODT’s SDIT guide also emphasizes that the 20-mill floor can limit a district’s ability to reduce effective property tax rates below 20 mills unless the district voluntarily requests a reduction.
Income taxes work differently. They can grow when residents’ taxable income grows and can reduce reliance on homeowners, but they are also more exposed to employment and economic cycles and may even decline under certain circumstances. Districts considering SDIT should model both SDIT bases, think about impacts of economic conditions (reduced revenue from economic downturns), and compare taxpayer impact across homeowners, renters, working families, retirees, and the various income levels of its residents.
Pros and cons for business officials to weigh
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Option
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Potential advantages
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Potential challenges
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Traditional SDIT
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Broadest SDIT base; generally higher yield; captures nonwage income; can diversify local revenue.
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May face resistance from retirees and residents with investment or retirement income; could be more complex to explain.
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Earned income SDIT
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Excludes retirement, investment, and pension income; could be an easier taxpayer message for aging communities; ties revenue to active earnings.
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Narrower base and usually lower yield; could be more sensitive to employment and wage cycles.
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Property tax levy
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Familiar to voters; stable and tied to real property; useful for operating, bond, or permanent improvement.
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H.B. 920 limits growth on many voted levies; burden falls heavily on property owners; repeated ballot requests can create fatigue.
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Practical planning considerations
A district should begin with data. Useful indicators include resident income trends, age distribution, senior credit activity, income concentration, enrollment projections, current effective millage, whether the district is at or near the 20-mill floor, and the community’s history with new and renewal levies. Comparing property tax capacity with SDIT yield helps school business officials answer the key voter question: “Why this tax, why now, and why this structure?”
Communication should be direct. Residents need to understand who pays, what income is taxed, how the district will use the revenue, when collections begin, and whether any property tax reduction is part of the proposal. Districts should also be clear that SDIT is not a municipal income tax: municipalities may tax nonresidents working in the municipality and businesses, while SDIT applies only to residents and individuals.
The best conclusion is not that SDIT is better than property tax, or vice versa. The better conclusion is that each serves a different purpose. Property taxes provide stability but limited organic growth under Ohio law. SDIT can diversify the revenue mix and capture income growth, but requires careful base selection and taxpayer education. For districts facing long-term operating and capital pressures, the most sustainable plan may be consideration of a balanced local revenue portfolio that matches the community’s demographics, income profile, and willingness to support a mix of taxing options for schools.
Sources and links:
• Ohio Department of Taxation, Guide to Ohio’s School District Income Tax for School District Administrators (January 2026): https://dam.assets.ohio.gov/image/upload/tax.ohio.gov/tax_analysis/tax_data_series/school_district_data/SDIT_QA.pdf